Kindred Healthcare, Inc. (“Kindred”) (NYSE:KND) and RehabCare
Group, Inc. (“RehabCare”) (NYSE:RHB) today jointly announced the
signing of a definitive merger agreement under which Kindred will
acquire RehabCare.
Under the terms of the merger agreement, each stockholder of
RehabCare common stock will receive $26 per share in cash and 0.471
of a share of Kindred common stock. Based upon the average value of
Kindred common stock, as defined, during the ten trading days
preceding the signing of the merger agreement, each RehabCare
stockholder will receive consideration with a current value of
approximately $35 per share. Kindred expects to issue approximately
12 million shares in connection with the pending transaction. The
aggregate value of the pending transaction approximates $1.3
billion, including approximately $400 million of existing
indebtedness.
This transaction will create the largest post-acute healthcare
services company in the United States with over $6 billion in
annual revenues and operations in 46 states. The combined company
will operate 118 long-term acute care (“LTAC”) hospitals with 8,492
licensed beds, 226 nursing and rehabilitation centers with 27,442
licensed beds, 121 inpatient rehabilitation (“IRF”) hospitals
(primarily hospital-based units) and 1,808 hospital, nursing center
and assisted living rehabilitation therapy services contracts
across the country.
The merger agreement was unanimously approved by the Board of
Directors of both Kindred and RehabCare. Under the terms of the
merger agreement, two members of the RehabCare Board of Directors
will join the Kindred Board following consummation of the
transaction.
Kindred believes the transaction will be highly accretive to
earnings and operating cash flows, exclusive of one-time items
related primarily to the pending merger, immediately upon closing.
In connection with the pending transaction, Kindred expects the
combined company to achieve operating synergies of approximately
$40 million within a period of two years following consummation of
the acquisition, with $25 million expected in the first year after
closing.
Kindred has obtained a financing commitment from JPMorgan Chase
Bank, N.A., Morgan Stanley Senior Funding, Inc. and Citigroup
Global Markets Inc. in connection with the pending transaction.
Subject to certain conditions as well as market conditions, the
Company expects to have in place approximately $1.9 billion of
long-term financing, of which approximately $1.6 billion is
expected to be outstanding at the time of consummation of the
pending transaction.
The RehabCare acquisition is subject to certain conditions,
including approvals by the stockholders of both companies,
consummation of financing in accordance with the commitment
letters, clearance of the notification to the Federal Trade
Commission under the provisions of the Hart-Scott-Rodino Act of
1976, as amended, and the receipt of certain licensure and
regulatory approvals. It is expected that the pending transaction
will be completed on or about June 30, 2011.
Paul J. Diaz, President and Chief Executive Officer of Kindred,
commented, “We are excited to announce the RehabCare acquisition
and we believe that the combination will be highly accretive for
Kindred stockholders, provide significant long-term strategic
benefits to the stockholders of both companies and enhance our
future growth prospects. The expansion of our size and scale and
the opportunities to integrate RehabCare’s LTAC and IRF hospitals
and rehabilitation therapy contract business with our operations
will create a stronger company both nationally and locally and
create value for all of our constituents in the communities we
serve. We are particularly excited about the opportunity to add
RehabCare’s services in our cluster markets and inpatient
rehabilitation services to our service offerings. Together with our
growing home care and hospice businesses, the merger offers our
patients an expanded continuum of services and the opportunity for
us to “Continue the Care” for our patients and residents through an
entire episode of treatment and recovery.”
Mr. Diaz also commented, “I know that all my colleagues at
Kindred join me in welcoming the RehabCare team as we jointly
pursue the closing of this transaction and the building together of
a great new company that is committed to ensuring that our patients
and residents continue to receive the best care on their journey to
recovery.”
John H. Short, Ph.D., President and Chief Executive Officer of
RehabCare, noted, “Our combination with Kindred delivers
significant value to our stockholders and provides an opportunity
to share in the future growth of the combined company. We share the
same commitment to delivering leading-edge post-acute care that
improves lives, and we expect our patients, healthcare partners and
professionals to benefit from the blending of our
organizations.”
Morgan Stanley is acting as financial advisor to Kindred, and
Cleary Gottlieb Steen & Hamilton LLP is acting as its legal
advisor.
CitiGroup, Inc. is acting as financial advisor to RehabCare,
Armstrong Teasdale, LLP is acting as its legal advisor and Bryan
Cave LLP is acting as legal advisor to its Board of Directors.
In connection with the pending transaction, Kindred has
suspended its fiscal 2011 earnings guidance.
Pro Forma Financial Information
In connection with today’s announcement of the RehabCare
acquisition, Kindred provided certain pro forma financial
projections so that investors could more easily assess and value
the combined company.
The pro forma financial projections included in this press
release assume that the pending transaction was consummated on
January 1, 2011 and include the projected results of the combined
company for the year ended December 31, 2011. Non-recurring costs
and expenses associated with the pending transaction have been
excluded from the pro forma financial projections. The pro forma
financial projections assume that Kindred will realize
approximately $25 million of operating synergies in the first year
following consummation of the transaction.
Based upon the pro forma financial projections, revenues for the
combined company should approximate $6.2 billion for the year ended
December 31, 2011. Operating income, or earnings before interest,
income taxes, depreciation, amortization and rent, is expected to
range from $892 million to $909 million. Rent expense is expected
to approximate $422 million, while depreciation, amortization and
net interest expense are expected to approximate $303 million.
Income from continuing operations for the year could approximate
$101 million to $111 million or $1.95 to $2.15 per diluted share
(based upon diluted shares of 51.2 million).
Mr. Diaz commented, “The RehabCare acquisition offers a unique
opportunity for significant growth and earnings accretion for
Kindred stockholders without excessive leverage. We expect that the
adjusted debt of the combined company, using a factor of six times
rents, should approximate 4.5 at the end of 2011. This compares to
Kindred’s stand-alone adjusted leverage of 4.4 at December 31,
2010. In addition, the combined company’s ability to generate
considerable operating cash flows will allow for significant
pay-downs of debt over the next few years.”
Conference Call
A joint conference call to discuss the pending transaction will
be held at 8:30 a.m. EST on Tuesday February 8, 2011. The
conference call can be accessed by dialing (913) 312-1305.
Investors can access a live webcast of the conference call through
a link on Kindred’s website at www.kindredhealthcare.com.
A telephone replay of the conference call will be available at
approximately 11:30 a.m. on February 8 by dialing (719) 457-0820,
access code: 7191328. The replay will be available through February
16.
Forward-Looking Statements
This press release includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements
regarding Kindred's and RehabCare's expected future financial
position, results of operations, cash flows, financing plans,
business strategy, budgets, capital expenditures, competitive
positions, growth opportunities, plans and objectives of management
and statements containing the words such as "anticipate,"
"approximate," "believe," "plan," "estimate," "expect," "project,"
"could," "should," "will," "intend," "may" and other similar
expressions, are forward-looking statements.
Such forward-looking statements are inherently uncertain. In
particular, the pro forma financial projections included in this
press release reflect Kindred management's assumptions and
estimates as of the date hereof. While Kindred management believes
these assumptions and estimates to be reasonable in light of the
facts and circumstances known as of the date hereof, the
projections are necessarily speculative in nature. Many of these
assumptions and estimates are driven by factors beyond the control
of Kindred or RehabCare, and it can be expected that one or more of
them will not materialize as expected or will vary significantly
from actual results. No independent accountants have provided any
assurance with respect to these projections. Moreover, Kindred does
not undertake any obligation to update projections and does not
intend to do so. Accordingly, you should not place undue reliance
on these projections or any of the other forward-looking statements
in this press release, which are likewise subject to numerous
uncertainties, and you should consider all of such information in
light of the various risks identified in this press release and in
the reports filed by Kindred and RehabCare with the Securities and
Exchange Commission (the "SEC"), as well as the other information
that Kindred and RehabCare provide with respect to the pending
acquisition.
The following factors, among others, could cause actual results
to differ from those set forth in the forward-looking statements:
(a) the receipt of all required licensure and regulatory approvals
and the satisfaction of the closing conditions to the acquisition
of RehabCare by Kindred, including approval of the pending
transaction by the shareholders of the respective companies, and
Kindred's ability to complete the required financing as
contemplated by the financing commitment; (b) Kindred's ability to
integrate the operations of the acquired hospitals and
rehabilitation services operations and realize the anticipated
revenues, economies of scale, cost synergies and productivity gains
in connection with the RehabCare acquisition and any other
acquisitions that may be undertaken during 2011, as and when
planned, including the potential for unanticipated issues, expenses
and liabilities associated with those acquisitions and the risk
that RehabCare fails to meet its expected financial and operating
targets; (c) the potential for diversion of management time and
resources in seeking to complete the RehabCare acquisition and
integrate its operations; (d) the potential failure to retain key
employees of RehabCare; (e) the impact of Kindred's significantly
increased levels of indebtedness as a result of the RehabCare
acquisition on Kindred's funding costs, operating flexibility and
ability to fund ongoing operations with additional borrowings,
particularly in light of ongoing volatility in the credit and
capital markets; (f) the potential for dilution to Kindred
stockholders as a result of the RehabCare acquisition; and (g) the
ability of the Company to operate pursuant to the terms of its debt
obligations, including Kindred's obligations under financings
undertaken to complete the RehabCare acquisition, and the ability
of Kindred to operate pursuant to its master lease agreements with
Ventas, Inc. (NYSE:VTR). Additional factors that may affect future
results are contained in Kindred's and RehabCare's filings with the
SEC, which are available at the SEC's web site at www.sec.gov. Many of these factors are beyond the
control of Kindred or RehabCare. Kindred and RehabCare disclaim any
obligation to update and revise statements contained in these
materials based on new information or otherwise.
As noted above, this press release includes a financial measure
referred to as operating income. Kindred uses operating income as a
meaningful measure of operational performance in addition to other
measures. Kindred uses operating income to assess the relative
performance of its operating divisions as well as the employees
that operate these businesses. In addition, Kindred believes this
measurement is important because securities analysts and investors
use this measurement to compare its performance to other companies
in the healthcare industry. Kindred believes that income from
continuing operations is the most comparable GAAP measure. Readers
of Kindred's financial information should consider income from
continuing operations as an important measure of Kindred's
financial performance because it provides the most complete measure
of its performance. Operating income should be considered in
addition to, not as a substitute for, or superior to, financial
measures based upon GAAP as an indicator of operating performance.
A reconciliation of the estimated operating income to income from
continuing operations provided in the pro forma financial
projections is included in this press release.
Additional Information about this
Transaction
In connection with the pending transaction with RehabCare,
Kindred will file with the SEC a Registration Statement on Form S-4
that will include a joint proxy statement of Kindred and RehabCare
that also constitutes a prospectus of Kindred. Kindred and
RehabCare will mail the definitive proxy statement/prospectus to
their respective stockholders. WE URGE INVESTORS AND SECURITY
HOLDERS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE
PENDING TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of
the joint proxy statement/prospectus (when available) and other
related documents filed by Kindred and RehabCare with the SEC at
the SEC’s website at www.sec.gov. The joint proxy
statement/prospectus (when available) and the other documents filed
by Kindred and RehabCare with the SEC may also be obtained for free
by accessing Kindred’s website at www.kindredhealthcare.com and
clicking on the “Investors” link then clicking on the link for “SEC
Filings” or by accessing RehabCare’s website at www.rehabcare.com
and clicking on the “Investor Information” link and then clicking
on the link for “SEC Filings”.
Participants in this
Transaction
Kindred, RehabCare and their respective directors, executive
officers and certain other members of management and employees may
be soliciting proxies from their respective stockholders in favor
of the pending transaction. Information regarding the persons who
may, under the rules of the SEC, be considered participants in the
solicitation of stockholders in connection with the pending
transaction will be set forth in the joint proxy
statement/prospectus when it is filed with the SEC. You can find
information about Kindred’s executive officers and directors in
Kindred’s definitive proxy statement filed with the SEC on April 1,
2010. You can find information about RehabCare’s executive officers
and directors in its definitive proxy statement filed with the SEC
on March 23, 2010. You can obtain free copies of these documents
from Kindred or RehabCare, respectively, using the contact
information above.
About Kindred Healthcare
Kindred Healthcare, Inc., a top-200 private employer in the
United States, is a FORTUNE 500 healthcare services company based
in Louisville, Kentucky with annual revenues of over $4.3 billion
and approximately 56,800 employees in 40 states. At December 31,
2010, Kindred through its subsidiaries provided healthcare services
in 696 locations, including 89 long-term acute care hospitals, 226
nursing and rehabilitation centers and a contract rehabilitation
services business, Peoplefirst rehabilitation services, which
served 381 non-affiliated facilities. Ranked as one of Fortune
magazine’s Most Admired Healthcare Companies in 2009 and 2010,
Kindred’s mission is to promote healing, provide hope, preserve
dignity and produce value for each patient, resident, family
member, customer, employee and shareholder we serve. For more
information, go to www.kindredhealthcare.com.
About RehabCare Group
Established in 1982 and headquartered in St. Louis, MO,
RehabCare Group, Inc. (www.rehabcare.com) is a leading provider of
post-acute care, owning and operating 34 long-term acute care and
rehabilitation hospitals and providing program management services
in partnership with over 1,250 hospitals and skilled nursing
facilities in 42 states and Puerto Rico. RehabCare is included in
the Russell 2000 and Standard and Poor’s Small Cap 600 Indices.
KINDRED HEALTHCARE, INC.
Reconciliation of Pro Forma Financial Projections - Continuing
Operations (a) For the Year Ending December 31, 2011
(Unaudited) (In millions, except per share amounts)
As of February 8, 2011 Low High
Operating income $ 892 $ 909 Rent 422 422 Depreciation and
amortization 185 185 Interest, net 118 118 Income
from continuing operations before income taxes 167 184 Provision
for income taxes 66 73 Income from continuing
operations 101 111 Allocation to participating unvested restricted
stockholders 1 1 Available to common stockholders $
100 $ 110 Earnings per diluted share $ 1.95 $ 2.15
Shares used in computing earnings per diluted share 51.2
51.2 (a) The pro forma
financial projections included in this press release assume that
the pending transaction was consummated on January 1, 2011 and
include the projected results of the combined company for the year
ended December 31, 2011. Non-recurring costs and expenses
associated with the pending transaction have been excluded from the
pro forma financial projections. The pro forma financial
projections assume that Kindred will realize approximately $25
million of operating synergies in the first year following
consummation of the transaction. The pro forma financial
projections reflect Kindred management's assumptions and estimates
as of the date hereof. While Kindred management believes these
assumptions and estimates to be reasonable in light of the facts
and circumstances known as of the date hereof, the projections are
necessarily speculative in nature. Many of these assumptions and
estimates are driven by factors beyond the control of Kindred or
RehabCare, and it can be expected that one or more of them will not
materialize as expected or will vary significantly from actual
results. No independent accountants have provided any assurance
with respect to these projections. Kindred does not undertake any
obligation to update projections and does not intend to do so. See
"Forward-Looking Statements" in the accompanying press release.
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